Economic policy uncertainty and energy production in China

Abstract

Owing to economics are usually linked with energy production, economic policy may have an instantaneous adjustment according to the current monetary, financial, cultural circumstances. This research thus investigates the dynamic co-movement as well as cointegration relationships between economic policy uncertainty (EPU) and disparate energy productions, i.e., Chinese coal, natural gas, crude oil, electricity as well as renewable energy, during the period from January 1995 to October 2019 in China. We compare the two EPU indices and make empirical and robust analysis to get more evidence for the time-varying co-movement between energy production and EPU. The empirical results show that there are stationary properties and cointegration relationships between energy production and EPU. By utilizing wavelet co-movement analysis in the time-frequency domain, our results show a significant positive co-movement among disparate energy productions and EPU at high frequencies, i.e., in the short term, but weaker co-movement at low frequencies, i.e., in the long term. Hence, the phase-difference series are mostly around the zero line, implying the variables behave to the dynamics of the co-movement with positive causality. Policy recommendations are offered in accordance with our finding.

Keywords: Economic policy uncertainty;; Energy production;; Phase-difference;; Time-frequency domain; Wavelet co-movement;.